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City Hall Screws One of its Best Friends in Affordable Housing

On the one hand, this new story about the city screwing over some affordable housing developers is depressingly familiar. On the other hand, it’s utterly inexplicable.

Every single thing I ever reported in some 15 years covering the Lockey & MacKenzie case about the city shafting affordable housing developers is confirmed and validated in a new lawsuit filed Friday. But this new suit comes from people who were supposed to be City Hall’s best friends.

Of course, downtown developers Curtis Lockey and Craig MacKenzie were City Hall’s best friends, too, until they weren’t. Quick takeaway? Don’t be Dallas City Hall’s best friend. You might as well paint a big bull’s-eye on your back with a sign that says, “Place knife here.”

The new lawsuit claims the city has stiffed the partners in a downtown development, Hamilton Properties, a for-profit developer; and CitySquare, City Hall’s favorite housing and poverty nonprofit, for $8 million. The money is a subsidy the city agreed by contract to pay.

Here’s the really strange thing. In its legal defenses against Lockey and MacKenzie over the years, the city has repeatedly invoked its deal with Hamilton Properties and CitySquare to paint itself as the good guy.

Lockey and MacKenzie said the city reneged on them, too. They said the city killed their downtown office tower redo deal because the city didn’t really want working-class people living downtown, even though the city was using a ton of federal low-income housing money to fund the renovation of empty towers.

The city said no, people just needed to look at the great affordable housing deal the city was doing with Hamilton/CitySquare. And, yes, Hamilton/CitySquare pulled off something really great. They took a messy assemblage of old buildings that had belonged to the local natural gas utility and turned them into the biggest mixed-income residential project in downtown.

I toured the development after it had been open about a year, including some inside peeks at occupied units while the occupants were away (with their permission, I hope). The great thing about that project is that it disproves and dispels so much of the old funky Dallas phobia about mixed-income residential developments.

In their litigation, Lockey and MacKenzie documented a bias among city staff and elected officials to the effect that income strata must be kept strictly segregated or everyone will die. Here’s what struck me in walking around Lone Star Gas Lofts: In this age of fairly informal dress and even more informal address, it’s not as easy as it used to be to tell what income level people occupy by their clothes or how they say hello.

I’m not saying a mixed-income building itself can create its own classless society, but I am saying people can get along pretty well in terms of checking their mailboxes and holding the elevator for each other. It’s a cool place. I didn’t see any dead bodies around.

Plus, Lone Star Gas Lofts was the city’s ace in the hole for fighting off the Lockey and MacKenzie litigation, which, by the way, is by no means over and done with. It lurks, ready to pounce again, and I will explain that in a later column.

Hamilton/CitySquare signed the deal for the Lone Star Lofts in 2009. Why now, 10 years later and after the thing has been up and running successfully all this time, would the city stiff them for 8 million bucks? It’s a mystery.

One player in the story, who asked not to be identified, rejected my suggestion that some sort of conspiracy or malice must be afoot. He invoked an aphorism called Hanlon’s razor: Never attribute to malice that which can be adequately explained by stupidity.

Yeah. Maybe. But remember, I covered 15 years of malice in Lockey and MacKenzie. Well, malice plus stupidity, if that helps.

The money in question involves a special taxing entity set up by the city called a tax increment finance district or TIF. At the beginning of a typical TIF deal, the city signs a contract agreeing that, on down the road when the project has already bolstered the tax rolls by X amount, the city will give such and such a portion of that back to the developer.

So this project is on down the road. A year ago, the city was supposed to pay the developers $8 million. The lawsuit says the city has not paid a nickel, offering a series of penny-ante excuses. A year has gone by. And it’s 8 million bucks. American.

I reached out to the Dallas City Attorney’s Office. I was calling only hours after the lawsuit had been filed. They declined to comment.

I asked John Greenan, CitySquare’s development officer, why he thought matters had come to this pass: “We really didn’t want to file suit,” he said. “It just took so long, and we got so little response from the city, we didn’t feel like we had a choice.”

I talked to Larry Hamilton, one of the principals in Hamilton Properties. He said, “We really appreciate the city of Dallas and the City Council.

“All of our projects down here (the Hamiltons also are active in Denver) have been public/private partnerships where we did some good things I think to revitalize downtown. We were kind of the forerunners of it. We couldn’t have done it without the city’s help.

“So we’re grateful to them,” he said, “but in this case we didn’t know what else to do. There’s just a bureaucratic inertia. We get along OK with the current regime (at City Hall). We’re on good terms with them. But for some reason, they are slow pay.”

Sure. Bureaucratic inertia. Hanlon’s razor. Had to sue, just didn’t know what else to do. Slow pay. But you know what? The lawsuit itself tells a very different story.

Referring to some of our own reporting at the Dallas Observer and to some work by D Magazine, the suit describes in graphic detail a long lurid history in which Dallas City Hall has used government-subsidized housing to reinforce racial segregation in the city. I don’t think you can take this new story — the city shafting its own best friend on low-income housing — and consider it apart from that history.

But for the sake of argument, let’s do consider the Hanlon’s razor explanation — stupidity or incompetence. That still goes straight to another topic I have been writing about a lot lately — the city’s heavy-handed use of zoning and safety rules to shut down fully legitimate businesses in high-crime areas, rather than the city taking responsibility for crime-fighting itself.

What kind of message do these behaviors on the city’s part send to investors thinking about putting down stakes here? If you’re a small potatoes business, a gas station or a car wash, the answer is clear.

If the city’s massive entrenched City Hall bureaucracy decides that destroying your business is a way for them to cover their own rear ends, they’ll do it in a heartbeat and never look back. We’ve known that for some time. But the Lone Star Gas Lofts story, I must confess, shocks even me, and to shock me about City Hall takes massive, massive voltage.

These complicated public/private deals involve very complex funding. It’s not just city money from the TIF. The developers have to raise major money from a variety of sources, some private. The TIF money, if and when it shows up, is the gravy that makes it a good deal for everybody.

Private lenders looking at this thing will have to ask themselves what the risk factor is in dealing with Dallas City Hall. You would think the city would want to bend over backward to avoid anyone ever describing it with a term like “slow pay.” Slow pay for 8 million bucks, no less.

The lawsuit makes another point. The TIF payments are not guaranteed forever. A TIF’s funding is based on an overall increase in taxable value for all of the property within the TIF’s boundaries.

Stuff can happen, God forbid. Maybe a big property in the district burns and doesn’t get rebuilt. That could drag down the overall increment in value in the whole district enough to cut off TIF payments to the projects already completed. In that case, the completed projects are just out of luck. The cupboard is bare. Should have gotten paid sooner.

The lawsuit says there is enough money in the fund right now to pay off Hamilton/CitySquare, but the plaintiffs are worried about the fund dwindling away before they get paid. So they are asking a judge to freeze all payments from the fund until their matter is settled.

If a court agrees to do that, it will mean the whole “Downtown Connector TIF” will be screwed up until this gets resolved. It won’t just be Lone Star Gas Lofts. No developer will get the money from the TIF that they and their investors have been counting on.

And maybe this would all be justified and the city would be doing the right thing if it turned out that Larry Hamilton and John Greenan have been wearing extremely clever disguises all these years and they are really Vladimir Putin and Kim Jong Un. That’s just the kind of story I’m always hoping for.

But what if it’s just some idiot not wanting to take responsibility for signing off on a big check? That, sadly for me as a writer, is much more the kind of Dallas City Hall story with which I seem always to wind up.

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